By Stephen Young
By Stephen Young
By Stephen Young
By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
Instead, longtime city workers had rested easy, assured that their $1.2 billion pension fund was fat and healthy, even showing a $100 million surplus in 1993.
But on July 27, the board of trustees that oversees the fund delivered stunning news to about 7,000 current and past city workers. In a letter mailed to all fund members, the trustees revealed that the fund was in trouble. Not only was there no surplus, the letter from the pension trustees said, but the fund was losing money. It would eventually go broke unless someone--taxpayers, city employees, or both--began kicking more money into the pot.
According to the letter, previous financial advisors had been wrong in their glowing projections of the fund's fiscal soundness. City workers were living longer, retiring earlier, and quitting their jobs less often than the advisors had assumed. As a result, more money was being paid out in pensions than was coming in from contributions and returns on investments.
"These are powerful factors that have increased the long-term liabilities for the Fund," the letter said. "The Fund cannot continue long term with its present level of contributions and benefits."
Reaction to the trustees' message has been furious. City Manager John Ware stepped forth to proclaim the fund healthy. Ware publicly castigated the fund's trustees, accusing them of unnecessarily fomenting fear among city workers. The trustees shot back, claiming that the fund was losing $21 million a year, and wouldn't survive unless the city agreed to contribute more money.
Who was right? Eight months later, city employees--and taxpayers who might have to foot the bill if there is a shortfall--still don't know. Disagreement over the fund's fiscal health has sparked one of the most vicious political battles in recent City Hall history. But any comfort city workers might have hoped to gain regarding their pensions has drowned in the rhetorical bloodletting.
Leading the charge for the city is Ware, who insists that the fund is fine. Ware would not discuss the pension fund situation, deferring questions to Assistant City Manager Mary Suhm. Even though he has no legal authority or control over the fund, the combative city manager has committed more than $285,000 in taxpayer money to pay hand-picked consultants to generate reports agreeing with his point of view. Ware has had his staff comb through the travel expenses of pension fund trustees and, in a December letter to employees, demanded that all of the trustees resign because he has "no confidence in their judgment, ability, or leadership."
Pitted against Ware has been Randy Stalnaker, a veteran employee of the city's sewer department who was elected to the pension board by his fellow city workers in 1989. Stalnaker and other trustees contend that Ware is blasting them rather than dealing with the fund's problems because the city manager does not want bad financial news to affect the city's bond rating.
A potential pension fund shortfall must be disclosed when the city sells bonds, and such news can affect the ratings and prices on notes. Stalnaker and his allies argue that Ware is trying to keep the ratings high in case Dallas decides to issue bonds for a new downtown sports arena, a project Ware seems determined to push through no matter how little economic sense it makes for the city.
Stalnaker says he won't let Ware sacrifice the safety of city pensions on the altar of bond ratings, and has fought back with some accomplished political maneuvers of his own.
Early on, Stalnaker went to the press behind Ware's back, persuading The Dallas Morning News to publish an editorial highlighting problems with the pension fund. Stalnaker has also pulled political strings to entice the state board that oversees municipal pension funds to jump into the fray.
For all the sound and fury, what apparently has not been undertaken is an impartial, systematic review of the financial soundness of the pension fund. Instead, the two sides are preoccupied with outmaneuvering each other on a political battlefield that is fast becoming littered with the reports of actuarial advisors.
Actuarial advisors have a nearly impossible job, trying to project up to 80 years into the future on questions such as when people will retire, and how long they will live thereafter. The projections are crucial in trying to discern whether a pension fund is flush, or in trouble.
Not surprisingly, there is plenty of room for argument and error. One of the most significant assumptions in running a pension fund is the estimate of how much income the fund will earn on the investments it makes with its money.
Wildly different expectations about a reasonable rate of return beat at the heart of the battle between Ware and Stalnaker. Ware and his advisors contend the fund can expect a 9.2 percent rate of return on its assets--a rate higher than that assumed by any other public pension fund in the state. Perhaps not surprisingly, when the 9.2 percent rate of return is plugged into the Dallas pension fund numbers, the future looks very bright.